Attaching a COLA to a minimum-wage increase allows Louisville politicians to avoid accountability for future hikes

(Note: This release contains a corrected phone number from today’s email version.)

(LOUISVILLE, Ky) – Instead of considering policies that would make Kentucky’s largest city a mecca of economic growth, a majority of Louisville Metro Council members are resorting to a policy that would raise the minimum wage and harm the very people they intend to help.

While the Democratic majority on the council has apparently reached an agreement with Mayor Greg Fischer to raise the city’s minimum wage from the current $7.25 rate to $8.75 per hour, this should not be viewed as some great compromise or example of strong leadership.

“It’s neither,” said Jim Waters, president of the Bluegrass Institute for Public Policy Solutions, Kentucky’s first and only free-market think tank, which has successfully led efforts during the past few years to stop Frankfort’s big-government politicians from increasing the minimum wage statewide.

“We call on Mayor Greg Fischer to veto any proposal that would tell business owners what they must pay their employees,” Waters said. “If the mayor caves on this, it will be a demonstration of the weakest leadership possible as it will place populism over principle and harm the chances that Louisville’s young and inexperienced workers can get meaningful employment that will give them the skills needed to begin a successful career in an increasingly competitive workplace. With his business background, the mayor ought to know better than to participate in this kind of economic nonsense.”

In addition, the Institute calls on the mayor to veto any minimum-wage increase that ties the rate in future years to a cost-of-living adjustment (COLA). This would only serve to drive up the wages small businesses are forced to pay their youngest workers in years to come – without so much as a vote or an ounce accountability by the politicians who support this poor policy.

“We believe that tying a COLA to the Consumer Price Index – which is what most of these measures tend to do – overly inflates the cost of living and the rate of inflation,” Waters said.

Today’s blog posting here offers several reasons to be concerned about attaching a COLA to any kind of already ill-advised minimum-wage increase.

We urge our Louisville supporters to contact the Louisville Metro Council at (502) 574-1100 and the mayor’s office at (502) 574-2003 and urge them to oppose a minimum-wage increase along with the embedding COLAs that would automatically increase the rate in future years without requiring so much as a vote.

“While Louisville already is at an economic disadvantage with Indiana – the state right across the Ohio River – in terms of a lack of a business-friendly tax policy, right-to-work law or stellar educational options for its poorest citizens, forcing a minimum-wage increase on its business community will only add to its inability to compete for jobs and economic opportunity in the future,” Waters said.

In a Bluegrass Institute report to be released in January on the impact that raising the minimum wage statewide would have on Kentucky’s economy, Western Kentucky University economist and Bluegrass Institute Scholar Brian Strow, Ph.D., notes the makeup of the segment of the minimum-wage workforce:

  • Nearly a quarter are teenagers
  • More than half are between the ages of 16 and 24
  • Almost two-thirds are part-time workers
  • Only 15 percent are breadwinners trying to support a family
  • About 45 percent are in occupations related to food-service preparation and serving.

“The groups most likely to be put out of work by minimum-wage increases are the very people whom the policy is supposed to help: young people and the working poor,” Strow concludes.

For interview or comment, contact Bluegrass Institute Jim Waters @ (270) 320-4376 or jwaters@freedomkentucky.com.

‘Certainty and transparency’ needed in sentencing

“The issue is not truth in sentencing, but certainty and transparency in sentencing. Our system needs to change.” — J. Michael Brown, Secretary of the Justice and Public Safety Cabinet

Louisville Metro Council: At least put minimum-wage COLA in economic purgatory

Downtown_skyline-_Louisville,_KY

Ironic, isn’t it, that during the very week fiscal courts in three Kentucky counties passed the first countywide right-to-work ordinances in the commonwealth and the country, a government mandated minimum-wage increase was the policy du jour in Kentucky’s largest city and its primary economic engine.

No doubt the rumblings in recent days that the Louisville Metro Council will reach a “compromise” and raise the minimum wage to $8.75 instead of the $10.10 that the council’s liberal members clamored for will be hailed as some kind of legislative middle ground.

It is no such thing.

This policy will instead harm the very people it’s intended to help. If the mayor had any political courage, he would say that loudly with a veto. Certainly, no one should think he’s some kind of great negotiator.

This is a bad deal for everyone except for the council’s populists who no doubt will use this for political gain in their next election.

But I’m sure part of their campaign’s talking points won’t include anything about how the measure will cause the city to lose even more of its ability to compete with Indiana – which is right across the river, or about how that by raising the minimum wage, the bottom rung of the employment ladder will be cut off for young, inexperienced workers from low-income homes who desperately need an opportunity to break into the workforce and get a start.

It will, however, bring glee to the labor unions who fund the political campaigns of its supporters. Unions thrive on minimum-wage increases because they drive up wages for workers on higher rungs of that same employment ladder.

While $8.75 is better than $10.10 in terms of harming fewer people – as those who provide at least $9 worth of productivity to their employers will likely get to keep their jobs – I’ve become aware of an attempt by some on the council to attempt adding an automatic cost-of-living adjustment (COLA) to the higher minimum wage, further harming the city’s economic competitiveness and creating even greater uncertainty for the business community.

Adding a COLA to a minimum-wage increase is economic idiocy and political cowardice. A COLA offers the potential of driving up wages significantly every few years without its supporters being forced to deal with a vote and at least be accountable for each such increase.

It’s unsound policy for several reasons:

  • Credible economic experts offer valid concerns related to how the Consumer Price Index (CPI), which COLAs attached to minimum wages are often based upon, is calculated for a particular region.
  • The index is calculated by the Bureau of Labor Statistics (BLS) based on national data. Much the same way that $7.25 goes much farther in Kentucky than in New York City, oftentimes a cost-of-living adjustment fails to reflect the real costs in the areas where the COLA is applied.
  • The CPI overly inflates the cost of living and rate of inflation for the nation as a whole.

An alternative index, the Personal Consumption Expenditures deflator (PCE), meanwhile, consistently produces lower inflationary numbers. Using the PCE to adjust for inflation equates that to $8.28 per hour in 2013 dollars, while the CPI equates it to $10.56 per hour in today’s money. Critics also point to these other biases in CPI calculation:

  • It inadequately accounts for changing consumption patterns (such as Americans purchasing more smartphones as prices fall).
  • It doesn’t account for new online sales and bargain retail outlets (such as Wal-Mart, Amazon).
  • It inadequately adjusts for quality improvements in goods and services (Some goods that are becoming more expensive are also longer lasting and of higher quality).

Comparing CPI and PCE calculations, it appears that the CPI artificially inflates cost adjustments by about 1 percent per year. Though small initially, the impact of this inflation compounded over decades offers the potential of seriously distorting earnings.

Indexing the minimum wage to CPI relies on a self-fulfilling circular logic:

CPI Chart

Instead of helping workers adjust to a region’s cost of living, implementing a COLA on the minimum wage actually makes the region less affordable.

Rather than just giving low-wage workers a fair shake as proponents suggest, COLAs actually create unprecedented minimum-wage levels that price businesses from the labor market and price consumers out of the market for goods and services. Much like many other well-intentioned minimum-wage increases around the country, these COLAs ultimately hurt the very people that they were designed to help.

Meanwhile, in our very own commonwealth, Fulton, Warren and Simpson Counties are on their way to being the first three right-to-work counties in the nation. Bowling Green, the economic center for Warren County, currently has 5 percent unemployment, which is about 1 percent lower than the nation overall and one of the lowest rates in the Bluegrass State.

Contrast that performance with Pine Bluff, Arkansas, which has a COLA imbedded into its minimum-wage law and an 8.7 percent unemployment rate to go along with it. Others with a COLA show similar performances, including Arizona (6.6 percent unemployment), Syracuse, New York (7.2 percent), Sacramento, California (8.1 percent), Rochester, New York (7.8 percent) and Oakland, California (8.8 percent).

The inability by some legislative bodies to implement common sense, pro-growth policies is having long-term negative impacts on these regions’ competitiveness and economic viability. There’s no reason to believe Jefferson County won’t follow the same path.

A majority of Louisville Metro Council members seem hell-bent on passing some kind of minimum-wage increase; the least they could do is help the city by placing the idea of an embedded COLA in economic purgatory for now.

Frankfort, we have a problem

No-one is watching for fraud in Kentucky’s school districts???!!!

A huge brouhaha is unfolding in Shelby County as discussions continue to swirl around the embezzlement of about $600,000 of Shelby County School District funds by a former district finance person. The latest shot, reported by the Shelby County News-Sentinel in “Board questions auditor over fraud,” reveals something that could be a major, statewide problem.

Here’s what happened. When asked why the required annual audits of Shelby County’s funding had not identified the thefts, which reportedly occurred for multiple years, the current audit firm said:

“’Well basically that’s because we were not engaged to do so. We were engaged to do a financial audit, which is required in order to receive the KDE funding, your federal funding. If you read through our contract that we have with you – the contract’s approved by the state – it specifically mentions in there that we’re not here to detect fraud.’”

So, there it is. Kentucky taxpayers are spending literally billions each year on our public school system and it appears that no-one is responsible for checking on a routine basis to see if any of that money is being illegally diverted.

To be sure, there have been some spectacular discoveries by the Kentucky Auditor of Public Accounts
Adam Edelen in other districts like Dayton Independent and Mason County, but these only happened when local whistle blowers tipped his office about problems. The Kentucky auditor isn’t funded and isn’t responsible to ride herd on the public schools.

I thought each district’s required annual audits were supposed to do that.

Apparently, no-one is doing that.

This isn’t going to fly. The latest Annual Financial Revenues and Expenditures Report for 2012-13 from the Kentucky Department of Education shows in that school year the total amount of taxpayer money funneled through Kentucky’s school districts was $7,880,001,383. That’s just too much temptation for the greedy. And, we are not talking about charter schools here. This fraud and waste is going undetected in traditional public schools right here in Kentucky. It’s time to do a better job protecting the students and the taxpayers.

Defining terms: Common core

“Common Core is set of national curriculum standards that the federal government strong-armed states into adopting. The standards erode local autonomy over education policy and are extremely costly to implement. They have also produced plenty of confused teachers, parents, and children …” –Robby Soave, Hit & Run blog (Reason)

Bluegrass Institute provides intellectual ammunition for historic county right-to-work campaigns

Right-to-Work logoBluegrass Institute president Jim Waters made the following statement to the Warren County Fiscal Court just prior to Thursday’s historic 6-1 vote approving the nation’s first countywide right-to-work ordinance:

Good morning ladies and gentlemen.

I am very pleased to be here as the president of the Bluegrass Institute for Public Policy Solutions – which began just a couple of blocks from here – over on Fountain Square in September of 2003.

The Bluegrass Institute is a state-based public policy think tank dedicated to offering free-market solutions to Kentucky’s greatest challenges. Our policy solutions are based on the principles of economic prosperity, individual liberty, personal responsibility and a respect for the lives and properties of others.

As a 501c3 nonprofit, nonpartisan, research-and-education organization, our mission is to offer and support economically sound, long-term common-sense policies that will benefit all Kentuckians while avoiding policy decisions based on emotion and designed to achieve short-term effects while benefiting only a few.

In our 11-year history, the Bluegrass Institute has achieved a strong reputation of taking positions based on ideas and policies rather than politics. We do not take positions on issues based on political partisanship. Rather, our policy positions are based on credible data, dispassionate observation and just plain ol’ Kentucky common sense.

Looking at the issue that way, it’ s no wonder that based on a poll released by the Institute this past summer, 80 percent of Kentuckians answered “absolutely” to this single question: “Should employees have the right to decide, without force or penalty, whether to join or leave a labor union?”

I’m not really surprised, considering that 40 percent of Kentuckians live in counties that border another state, and they see every day the results of unfriendly business policies – including the lack of a right-to-work law.

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Bluegrass Beacon – Right-to-work: Counties should act if Frankfort won’t

BluegrassBeaconLogoAmericans fundamentally believe in liberty, which means you shouldn’t be forced to join a union and pay dues just to get – or keep – a job.

Workers in 24 other states already enjoy such freedom. However, 95,000 Kentuckians in the private-sector workforce are still forced to join up and pay as much as 2 percent of their paychecks in dues.

While a statewide right-to-work law has a higher mountain to climb in Frankfort after November’s mid-term elections in which some key races were won by opponents of such freedom, there’s more than one path to greater individual freedom and increased prosperity across the commonwealth. And that journey could begin at a county courthouse near you.

A hidden highlight discovered in Kentucky law is called the “County Home Rule” passed by the General Assembly in 1978 that:

  • Delegates to county fiscal courts the legislature’s authority to promote economic development and regulate commerce
  • Allows county fiscal courts to approve policies not expressly prohibited by the legislature

The law described in KRS 67.083 contains language providing local county governments “with the necessary latitude and flexibility to provide and finance various governmental services” within certain areas, including the “regulation of commerce for the protection and convenience of the public;” and “promotion of economic development of the county, directly or in cooperation with public or private agencies.”

Right-to-work fits the “County Home Rule” like the Wildcats fit in Rupp Arena. It protects workers from losing their jobs for refusing to become members of labor unions or pay dues while also serving as a county’s very own “open for business” sign in a state that’s generally not.

My research has yet to turn up a single county in America that has passed its own right-to-work law in any state lacking such a statute. Maybe Kentucky could be first, for a change.

Evidence that counties passing such an ordinance stand to benefit greatly is at least as convincing as the available proof that the UK Wildcats have the No. 1 college basketball team in the country.

In research cited by the National Institute for Labor Relations Research, Tennessee’s three most-populated counties bordering Kentucky – Montgomery, Robertson and Sumner counties – showed nearly 16 percent growth in private-sector employment between 2002 and 2012 in the Volunteer State, which protects workers with a right-to-work policy. Meanwhile, employment in the three most-populated Bluegrass State counties along the same Kentucky-Tennessee border – Calloway, Christian and Graves counties – grew by less than 4 percent during that entire decade.

If what’s happened in right-to-work states is any indication of what could transpire in Kentucky counties with such a policy, growth in manufacturing, incomes and population would all be significantly greater than in non-right-to-work counties while welfare rates would drop. And all this just from allowing each individual worker to say “yes” or “no” to union membership without losing their jobs.

County leaders might also find some encouragement in knowing just how popular statewide such freedoms and protections are for individual workers.

Poll after poll – including a Bluegrass Institute poll last summer showing 80 percent approval statewide for right-to-work – indicate overwhelming understanding of and support for such a policy.

Most Kentucky judge-executives and magistrates likely don’t realize that they don’t have to wait on Frankfort to do something about the economic disadvantage their counties have been placed in while too many state politicians play political patsies with our economic future.

If enough counties were to pass their own right-to-work law, Frankfort would have no choice but to acquiesce as counties without such an advantage would be losing economic-development opportunities – not just to contiguous states, but to neighboring counties in their own state.

Kentucky law allows right-to-work policies to begin at county courthouses.

What are we waiting for?

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.

Warren votes to become America’s first right-to-work county

Right-to-Work logo(BOWLING GREEN, Ky.) — Last Thursday, the Bluegrass Institute suggested that Kentucky counties don’t have to wait on Frankfort to take advantage of the economic benefits of a right-to-work law. One week later, the Warren County Fiscal Court did just that – with the first of two votes required to become the first county in the nation to pass a right-to-work ordinance.

Twenty-four other states have right-to-work laws, which simply means that individual workers have the right to choose whether or not to join a union and pay dues without losing their jobs or being subject to threats or coercion.

“Who would have ever believed that Kentucky would be the only southern state left that doesn’t provide right-to-work protections for its workers?” Warren Co. Judge-Executive Mike Buchanon said. “Who could imagine that historically industrial union states like Indiana and even Michigan joined the industrial South before Kentucky?”

The ordinance approved covers only private-sector workers, not teachers or other public employees. The court will vote on the second reading of the ordinance on Dec. 19.

Bluegrass Institute president Jim Waters in his statewide newspaper column last week suggested that counties take advantage of a strong “County Home Rule” law passed by the General Assembly in 1978 and found in Kentucky Revised Statutes 67.0873 that delegates the state’s authority to counties to pass laws for the protection and benefit of their citizens, and for the “promotion of economic development of the county.”

Warren County is “taking the initiative” to use that rule to attract companies looking to expand or relocate and the jobs they will bring with them,” Buchanon said.

“Site selectors tell me that up to half of their manufacturer clients strike Kentucky off the list as a potential consideration, simply because we are not a right-to-work state,” he said. “This ordinance will promote economic development and commerce in a way that tells businesses and site selectors that Warren County is open for business.”

Waters in comments to the court before today’s vote touted the economic benefits of right-to-work policies, including evidence showing that individual counties where workers are free to make their own decisions regarding union membership and dues without threat of losing their jobs are significantly more competitive than counties that lack such policies.

For more information, contact Jim Waters at (270) 320-4376 or jwaters@freedomkentucky.com.

Kentucky state researchers: Don’t use College and Career Readiness Rates as Primary Indicators

Has Common Core implications

Backing up reservations we have been talking about for some time, researchers from the Kentucky Legislative Research Commission’s Office of Education Accountability (OEA) made their opinion of Kentucky’s new College and Career Ready (CCR) statistics very clear in their briefing today. This slide from their Power Point presentation to the Kentucky Legislature’s Education Assessment and Accountability Review Subcommittee spells it out:

Recommendation 2.4 - Don't use CCR for Evaluation of Programs

To reiterate, OEA’s new report, “A Look Inside Kentucky’s College and Career Readiness Data,” says educators should not use Kentucky’s new College and Career Ready (CCR) statistics as the sole or primary indicator when reporting on student outcomes or evaluating programs and policies. There are a number of reasons for the OEA recommendation. Some include:

• Inconsistent calculation of the CCR statistic over the years from 2010 to 2014, because new career ready criteria didn’t exist before 2012
• Test security issues,
• Variable difficulty among various tests used to show students are ready,
• Possibility of inflation on one test due to use of special calculators, which are banned for future testing, and
• The possibility that schools with similar CCR rates may actually have significantly different academic performance.

OEA Recommendation 2.4 has direct implications for claims citing Kentucky’s CCR performance as supposed evidence of the success of the Common Core State Standards in the Bluegrass State. Quite simply, the CCR statistics currently have too many problems to support such claims.

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School districts are REALLY after more money

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$2.4 Billion MORE!!!

I wrote yesterday about a pending report from a consortium of Kentucky school districts that would tell us how much more money they need to do their job well.

I was expecting sticker shock. I got sticker Tsunami!

The Herald-Leader just reported that the new report says Kentucky’s educators need $2.4 Billion more each year to do things their way!

Well, that’s no way!

This would mean about a 34 percent increase in school taxes. Given the relatively static revenue stream going to Frankfort and the attack on major Kentucky industries that depend on inexpensive energy (which is generated, for who knows how much longer, by coal), that increase would probably collapse the state’s economy completely.

There is a very important message here. Quite simply, the traditional education system seems clueless about how to make notable improvements in education without a massive further increase in spending. This means if we are going to improve education in this state, we have to start looking at other ideas from other areas.

This is school choice territory, and the new report emphasizes like never before that Kentucky is going to be seriously left behind if we don’t opt for less expensive school choice options that self-serving adult interests in our schools have steadfastly resisted.

I pointed out yesterday that the Center for Education Reform reports:

“Nationwide, on average, charter schools are funded at 61 percent of their district counterparts, averaging $7,612 per pupil compared to $10,441 per pupil at conventional district public schools.”

Even if the critics were right (I don’t think they are) and charter schools on average only do as well as traditional public schools, the fact that charters are doing that so much more economically still strongly says we need charters, and we need them right now.